TREASURY U/S LEVEY'S MEETINGS WITH ITALIAN BANKS

C O N F I D E N T I A L SECTION 01 OF 02 ROME 002484

SIPDIS

SIPDIS
NOFORN

TREASURY FOR U/S LEVEY, CEDDY, MMILLERWISE,

E.O. 12958: DECL: 12/07/2017
TAGS: EFIN IR KNNP PARM PREL IT
SUBJECT: TREASURY U/S LEVEY'S MEETINGS WITH ITALIAN BANKS

REF: A. ROME 2477

B. ROME 2394

C. SECSTATE 160808

Classified By: Econ Counselor William R. Meara
for Reasons 1.4 (b) and (d).


1. (C) Summary: U/S Levey met with Italy's major private
sector banks on November 27 and 28 in Milan and Rome. He
explained USG designations (for their involvement in Iran,s
proliferation activities) of Banks Melli and Mellat, and of
the Iranian Revolutionary Guard Corps (IRGC) and its
associated companies. He strongly cautioned Italian banks
about the risk of doing business with Iranian entities. The
Italian bankers noted that their Iranian exposure has
decreased substantially over the past year and said most of
their Italian competitors are also not accepting new Iranian
business. All of the banks noted that the majority of their
exposure to Iran is via export credits guaranteed by SACE,
the Italian ExIm Bank equivalent. The bankers uniformly
reported that they would honor existing contracts with
Iranian entities because they believe that, in the event of a
default, SACE bears the greatest risk and would continue to
back the credits. End summary.


2. (SBU) U/S Levey met with Italy's Mediobanca, Banca
Intesa San Paolo and Unicredito on November 27 and 28 in
Milan and Rome. U/S Levey opened the meetings with the
statement that Iran's finance of proliferation and
terrorism has moved from a unilateral U.S. concern to an
international/multilateral issue. He noted that a large
number of European banks were choosing not to do business
with Iranian entities in general, not just those listed in
UN designations. He said the Iranian regime is feeling the
pressure from sanctions and is looking for ways to get
around them. After the UN designation of Bank Sepah,
Iranian state-owned banks such as Melli and Mellat are likely
trying to pick up business on Sepah's behalf. The U.S. has
unilaterally designated Banks Melli and Mellat and the IRGC
and its associated companies for their support of Iran,s
proliferation-related activities. U/S Levey was clear that
while the USG hopes for a corresponding UN or EU designation,
banks should not wait for such a resolution to cease business
with these entities given the risk.

Mediobanca


3. (SBU) In response, Mediobanca Board Member Massimo Di
Carlo said his bank is not doing any new business with
Iranian entities. Mediobanca does have a representative
office in Tehran, but there is only one employee and he is
restricted to collecting payments on past loans. Di Carlo
relayed that Mediobanca's representative in Tehran confirmed
that the Iranian banking sector feels pressure from
sanctions, but is generally able to find other credit sources
in China and the Gulf. Di Carlo noted that since the 1970s,
business with Iran has been very profitable with below
average credit risk, but that in the current political
climate the reputation risk of business with Iran is too
high. Di Carlo portrayed Mediobanca's continuing Iranian
exposure as marginal and emphasized that it was entirely
long-term finance backed by SACE (Italy's Export-Import Bank
equivalent). Di Carlo said if Mediobanca withdrew from
dealings with SACE, they believed SACE would sue them.
Mediobanca asked that future UN designations continue to
include an avenue for Western banks to continue to receive
funds from designated entities in repayment for existing
loans.

Banca Intesa San Paolo


4. (SBU) Banca Intesa San Paolo Managing Director Corrado
Passera opened by saying avoiding doing business with
suspicious Iranian entities is not just a way to reduce
reputation risk for his bank but is morally the right thing
to do. Passera noted that Banca Intesa San Paolo is putting
systems in place for all of its branch banks (including those
in Eastern Europe and Russia) to check transactions against
the OFAC list. Further, he cited the bank's policy that

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transactions above a certain value must be reviewed and
approved at the bank's headquarters (excepted for
transactions originating in countries where this is illegal,
such as Russia). He stated that the bank had minimal Iranian
exposure (32 million euro, though this may not include
SACE-guaranteed financing) and was not, in general, pursuing
new business with Iran. He did note that the bank would take
on new Iran exposure that is approved and guaranteed by SACE.
(Comment: Though Passera promised the bank would do
everything in its power to block proliferation and terrorist
financing, he did not seem entirely confident that this was
possible, especially for small value transactions. End
comment.)

Unicredito


5. (SBU) Unicredito International and Institutional Affairs
Chief Guiseepe Scongnamiglio briefed U/S Levey on
Unicredito,s rapid expansion in the past seven years and
noted that the bank is now focusing on getting their
operational structure in order. Characterizing
Unicredito,s exposure to Iran as "very low," Scongnamiglio
said they are decreasing business with Iran and interactions
have dropped dramatically this past year. U/S Levey briefed
Unicredito officials on deceptive actions taken by Iranian
firms, including the misuse of an account held at
Creditanstalt in Vienna, a bank owned by Unicredito.
Scongnamiglio, who appeared surprised, said he would
investigate the matter and review their practices.


6. (C) Comment: While the banks say they fear lawsuits from
SACE if they pull out, we suspect that they stay active in
Iran because their operations there are profitable. Blaming
SACE is a convenient excuse to continue operating. SACE,
however, is unlikely to allow the banks to break contracts,
because they need the banks to continue their operations to
recoup the 2.1 billion Euros SACE has invested in Iran. End
comment.


7. (U) Under Secretary Levey cleared on this cable.
SPOGLI